One of the pivotal decisions in a company’s cycle is to carry out its first acquisition. The primary prerequisite for this to be successfully executed and completed is that there is a business rational reason for that decision – it can be market expansion, either geographically or by increasing the customer base, gaining a competitive advantage by eliminating competition or through vertical integration, diversifying the offering, reducing costs, or simply providing a good opportunity for acquisition. Every mergers and acquisitions (M&A) advisor will emphasize that, above all, a company that sees its growth strategy in acquisitions must know exactly and precisely what it wants to achieve with them.
The company HSM-informatika entered its first acquisition precisely guided by these principles, to expand its portfolio of services. One of the more challenging challenges in this process arose at the very beginning: there is no developed buying and selling market for companies in Croatia, and there is no catalog from which you can choose what you like. However, HSM’s co-owner and director Jakov Urbanke did not get discouraged.
– At the beginning of 2023, I let everyone I assessed could help me know that we were interested in expansion through acquisitions, and I also dedicated myself to actively seeking owners of IT companies interested in this form of connection. I certainly conducted about twenty initial conversations. Some ended after the first conversation, while others progressed to later stages. As often happens in life, I did not establish contact with the director and then-owner of the company IDE3 Ivan Hendija, in that way at all. Mr. Ante Mandić connected us, who was a mentor to both Ivan and me during the same period as part of the Sentor Association’s mentoring program for entrepreneurs, and who recognized that our connection would solve problems for both of us: for Ivan, who had just welcomed a new family member and saw that his previous work pace no longer suited him and needed help to improve how the company operates, and for me to help expand HSM’s offering with relevant programs that I assess will enable our development in the future – says Urbanke.
Aligning Expectations
There are two most common reasons why the process fails: money and – money. In the first case, it is about the valuation of the target company, and in the second about the structure of the transaction. Both occur during the price negotiation phase. In valuing the target company, it is best to collaborate with valuation experts to achieve a fair price based on factors such as multiples (EBITDA, revenue, etc.), the state of assets and cash flows, and comparisons with similar market transactions.
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